October 23, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
TELEFUNKEN SEMICONDUCTOR PHILIPPINES, INC., COURT OF TAX APPEALS, and the COURT OF
APPEALS, respondents.
Romero, J.:
SUMMARY: Telefunken wanted a refund or credit of contractors tax which, it alleges, was erroneously paid, on the
ground that it is exempted from the tax by virtue of being a pioneer enterprise under RA 6135. BIR contends that the
exemption applies only to pioneer enterprises under RA 5186 so Telefunken must register under that law to avail of
the exemption. CTA granted the refund and CA affirmed. On appeal by BIR, SC construed the 3 laws NIRC, RA
6135 and RA 5186, concluding that pioneer enterprises under RA 6135 are also exempted from contractors tax. SC
noted that the BIR has already ruled this way, but BIR argued that its ruling has been abrogated by the new NIRC.
SC replied that the wording of the provision in question has not changed, so the construction remains the same.
Furthermore, under NIRC Sec. 246, BIR rulings may not be given retroactive effect if prejudicial to the taxpayer.
DOCTRINE: SC: A comparison of [Sec. 191(16) of the previous NIRC] with Section 205(16) of the 1977 Tax Code
reveals that both provisions specifically mention pioneer industries registered with the Board of Investments under
Republic Act No. 5186 as exempt from payment of the contractor's tax. In fact, the wording of the relevant part of
both provisions are the same. The BIR ruling under the pre-1977 NIRC was still upheld.
BIR rulings may not be given retroactive effect if prejudicial to the taxpayer (NIRC, Sec. 246.).
NATURE: Petition for review on certiorari. Original action for refund or tax credit before BIR Appellate Division.
FACTS

TELEFUNKEN Semiconductor is a domestic corporation registered with the Board of Investments (BOI) as
an export producer on a preferred pioneer status under RA 6135.

Oct. 1979-Sep. 1981 Telefunken produced P92,843,774 worth of semiconductor devices which were all
exported to foreign markets.
o Telefunken filed percentage tax returns on said exportation as 3% contractors tax. It paid
P2,482,042.35. The payment was verified by the government.

Jan. 19, 1982 Telefunken wrote to the BIR Appellate Division, asking for the refund or credit of the
percentage contractors tax it paid for the period Oct. 1979-Sep. 1981.
o Telefunken argued that the payment was erroneous since it was then exempted from paying all
National Internal Revenue taxes, except income tax, pursuant to RA 6135, Sec. 7, in relation to RA
5186, Sec. 8(a). [apparently it was denied]

CTA RULING - In favor of Telefunken, CIR ordered to grant a tax credit of P2,482,042.35 to Telefunken.
Contractors tax was erroneously paid.

CA RULING Affirmed CTA. Hence this appeal by the CIR.

ISSUE (HELD)
W/N Telefunken is exempted from contractors tax under RA 6135 for the period of October 1979-September 1981
(YES)
RATIO

PERTINENT LAWS
o Pre-1977 NIRC, Sec. 191(16)

"SEC. 191. Contractors, proprietors or operators of dockyards, and others. - A contractor's

tax of three per centum of the gross receipts is hereby imposed on the following:
xxxxxxxxx
(16) Business agents and other independent contractors except persons, associations and
corporations under contract for embroidery and apparel for export, as well as their agents
and contractors and except gross receipts of or from a pioneer industry registered
with the Board of Investments under the provisions of Republic Act Numbered Five
Thousand one hundred and eighty-six."
o NIRC of 1977, Sec. 205(16), as amended by PD 1457

Section 205. Contractors, proprietors or operators of dockyards and others. A contractor's

tax of three percentum of gross receipts is hereby imposed on the following:
xxxxxxxxx

(16) Business agents and other independent contractors including private detective or
watchman agencies, except gross receipts of a pioneer enterprise registered with
the Board of Investments under Republic Act 5186.
RA 6135, Sec. 7

Section 7. Incentives to registered export producers. Registered export producers. Registered export producers unless they already enjoy the same privileges under
other laws shall be entitled to the incentives set forth in paragraphs (h), (i) and (j) of
Section 7 of [RA 5186], known as the Investment Incentives Act; and registered
export producers that are pioneer enterprises shall be entitled also to the
incentives set forth in paragraphs (a), (b) and (c) of section 8 of the said Act. In
addition to the said incentives, and in lieu of other incentives provided in Section 7 and in
Section 9 of that Act, registered export producer shall be entitled to benefits and incentives
as enumerated hereunder x x x
RA 5186, Sec. 8(a), as amended by PD 92

Sec. 8. Incentives to a Pioneer Enterprise. In addition to the incentives provided in the

preceding section, pioneer enterprises shall be granted the following incentive benefits:
(a) Tax Exemption. - Exemption from all taxes under the National Internal Revenue
Code, except income tax, from the date the area of investment is included in the
Investment Priorities Plan, to the following extent:
(1) One hundred per cent (100%) for the first five years;
(2) Seventy-five per cent (75%) for the sixth through the eighth year;
(3) Fifty per cent (50%) for the ninth and tenth years;
(4) Twenty per cent (20%) for the eleventh and twelfth years; and
(5) Ten per cent (10%) for the thirteenth through the fifteenth year.
xxxxxxxxxxxxxx

CIR: The exemption in NIRC Sec. 205(16) refers only to enterprises registered under RA 5186. It cannot b
extended to firms registered under RA 6135. Therefore, Telefunken must first register under RA 5186 to avail
of the exemption from contactors tax.
SC: No ambiguity in the law. When construed together, the foregoing provisions can only mean that the
gross receipts of a pioneer enterprise registered with the BOI (like Telefunken) are exempt from contractors
tax.
o The policy behind the law is the promotion and development of Philippine export industries (Sec.
2).
o NO DIFFERENCE BETWEEN GROSS RECEIPTS OF PIONEER ENTERPRISES UNDER RA
6135 AND RA 5186, AS HELD BY THE CIR HIMSELF.

BIR Ruling of Feb. 4, 1974 in the case of Asian Transmission Corp: Pursuant to
Section 7 of [RA] 6135, that corporation as a registered export producer on a pioneer
status is entitled to the same tax incentives granted to a pioneer industry set forth in
Section 8(a) of [RA] 5186. Under this latter provision, a pioneer industry is exempt from all
taxes under the National Internal Revenue Code, except income tax. In other words,
both a registered export producer on a pioneer status under [RA] 6135 and a
pioneer industry under [RA] 5186 are entitled to the same tax exemption benefits
under the Tax Code. Such being the case, like the latter, the former should not also
shoulder the contractor's tax which could be passed on it legally by its contractor.
CIR: The Asian Transmission ruling has been superseded by the 1977 Tax Code, which does not mention
pioneer enterprises under RA 6135, reference being made only to enterprises under RA 5186.
SC: Sec. 191(16) of the previous Tax Code, which was the basis of the Asian Transmission ruling, employs
essentially the same wording as that of the 1977 version [Sec.205(16)], therefore the same construction
applies. Both Sec. 191(16) of the old NIRC and Sec.205(16) of the 1977 NIRC specifically mention pioneer
industries registered with the Board of Investments under Republic Act No. 5186 as exempt from payment of
the contractor's tax.
o Telefunken falls under the category of pioneer industries contemplated in NIRC Sec. 205(16) and is
entitled to the tax exemption therein.
o Under Sec. 246 of the NIRC, BIR rulings may not be given retroactive effect, if the same is
prejudicial to the taxpayer.

DISPOSITION: Petition denied. CA decision affirmed.